Tech Flex: August, 2017 Volume VIII

Transcription

1 Tech Flex: August, 2017 Volume VIII 1

2 Tech Flex: March, 2018 Volume III Topics Covered In This Issue Benefits: 2018 HSA Family Contribution Limit Decreased Adoption Assistance Limit for 2018 Lowered 2018 Publication 15-B Released Leave: Maryland Releases More Information on Sick and Safe Leave Austin Texas Approves Paid Sick Leave Ordinance Payroll: IRS 2018 Form W-4 and New Withholding Calculator Released IRS Issues 2018 Version of Publication 15-A Some Penalty Amounts Under IRC Sections 6721 and 6722 Decreased California Supreme Court Clarifies Overtime Calculations Involving Flat-Sum Bonuses Massachusetts High Court Rules that Sick Pay Does Not Constitute Wages Under State Law West Virginia Allows Wage Deduction Where Employee Fails to Return Employer Property Belmont California to Increase Minimum Wage Santa Fe County New Mexico Minimum Wage Increased 2

3 Tech Flex: March 2018 Volume III HSA FAMILY CONTRIBUTION LIMIT DECREASED On May 4, 2017, the Internal Revenue Service (IRS) published Revenue Procedure which provides inflation-adjusted limits for Health Savings Accounts (HSAs) and highdeductible health plans (HDHPs) for calendar year On March 5, 2018, the IRS announced a reduction to the 2018 contribution limit for an individual with family coverage under an HDHP from $6,900 (as previously announced in Revenue Procedure ) to a new limit of $6,850. The reason for the reduction is a provision in the Tax Cuts and Jobs Act (signed into law on December 22, 2017), which replaces the use of the consumer price index (CPI-U) as the inflation adjustment with what is commonly referred to as the chained consumer price index (C-CPI-U) for indexing dollar thresholds applicable to HSAs. As a brief background, both the CPI-U and C-CPI-U measure cost-of-living increases. The CPI-U looks at a number of consumer goods and services such as food, gas, and health care and averages the increase of those items. The C-CPI-U does the same thing but in addition it looks at consumer behavior in determining cost-of-living increases. For example, if the cost of gas increases, it takes into account that consumers may take the bus to work more often thus lowering the impact of the increase in gas and the consumer s transportation cost. Consequently, the C-CPI-U increases at a slower rate than the CPI-U. Below are the adjusted 2018 HSA and HDHP Limits. (Only the HSA Family Contribution Limit was decreased.) 2018 Annual HSA Contribution Limits: Self-only HDHP coverage: $3,450* (up $50 from 2017) Family HDHP coverage: $6,900* $6,850 (up $150 $ from 2017) *An individual, who has reached the age of 55 by the end of the calendar year, may contribute an additional $1,000 per year as a catch-up contribution Annual HDHP Minimum Deductibles: Self-only coverage: $1,350 (up $50 from 2017) Family coverage: $2,700 (up $100 from 2017) 2018 HDHP Out-of-Pocket Limits (includes deductibles, co-payments and other amounts, but not premiums): Self-only coverage: $6,650 (up $100 from 2017) Family coverage: $13,300 (up $200 from 2017) The IRS may be considering transitional relief on this issue. ADP will be monitoring and report any guidance provided by the IRS on this matter. For a copy of Revenue Procedure , click on the link below. 3

4 Tech Flex: March 2018 Volume III 4 ADOPTION ASSISTANCE LIMIT FOR 2018 LOWERED It was previously reported that on October 19, 2017 that the Internal Revenue Service (IRS) announced via Revenue Procedure the maximum amount that can be excluded from an employee s gross income for the amounts paid for qualified adoption expenses furnished pursuant to an adoption assistance program would be $13,840. On March 5, 2018, the IRS announced a reduction to that maximum amount, specifically to $13,810. This is an increase of $240 from the 2017 limit. The reason for the change is a provision in the Tax Cuts and Jobs Act signed into law on December 22, 2017 which substituted a measure when determining cost-of-living increases for benefits called the chained consumer price index (C-CPI-U) for the one previously mandated by law, the consumer price index (CPI-U) As a brief background, both the CPI-U and C-CPI-U measure cost of living increases. The CPI-U looks at a number of consumer goods and services such as food, gas, health care and averages the increase of those items. The C-CPI-U does the same thing but in addition it looks at consumer behavior in determining cost of living increases. For example, if the cost of gas increases, it takes into account that consumers may take the bus to work more often thus lowering the impact of the increase in gas and the consumer s transportation cost. Consequently, the C-CPI-U increases at a slower rate than the CPI-U. For a copy of Revenue Procedure please click on the link provided below PUBLICATION 15-B RELEASED The Internal Revenue Service (IRS) has released the 2018 version of Publication 15-B (Employer's Tax Guide to Fringe Benefits), which contains information for employers on the employment tax treatment of various fringe benefits, including accident and health coverage, adoption assistance, company cars and other employer-provided vehicles, dependent care assistance, educational assistance, employee discount programs, group term life insurance, moving expense reimbursements, health savings accounts (HSAs), and transportation (commuting) benefits. (Publication 15-B uses the term "employment taxes" to refer to federal income tax withholding as well as Social Security and Medicare (FICA) and federal unemployment (FUTA) taxes.) Publication 15-B is a supplement to Publication 15 (circular E). A few of the highlights under What s New are as follows: New tax legislation (P.L ). P.L contains significant revisions to the Internal Revenue Code. The publication was updated to include certain changes from P.L P.L suspended the exclusion of qualified bicycle commuting reimbursements from employee's income for any tax year beginning after December 31, 2017, and before January 1, P.L suspended the exclusion for qualified moving expense reimbursements by employers from employee's income for tax years beginning after December 31, 2017, and before January 1, However, the exclusion is still available in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station. The exclusion applies only to reimbursement of moving expenses that the 4

5 Tech Flex: March 2018 Volume III 5 member could deduct if he or she had paid or incurred them without reimbursement. See Moving Expenses in Pub. 3, Armed Forces' Tax Guide, for the definition of what constitutes a permanent change of station and to learn which moving expenses are deductible. Cents-per-mile rule. The business mileage rate for 2018 is 54.5 cents per mile. Employers may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, an employer may use the rate under the cents-permile rule to value the personal use of a vehicle For a copy of IRS Publication 15-B Employer's: Tax Guide to Fringe Benefits (For Benefits Provided in 2018), please click on the link provided below. MARYLAND RELEASES MORE INFORMATION ON SICK AND SAFE LEAVE It was previously reported that the 2018 Maryland General Assembly legislative session voted to override Governor Hogan's May 25, 2017 veto of the Maryland Healthy Working Families Act (Act) that requires employers with 15 or more employees to provide employees with earned sick and safe leave paid at the same wage rate as the employee normally earns. Under Maryland law overridden vetoes become law and effective 30 days from the date of the final vote to override which was January 12, 2018 making the Act effective February 11, For more summary information on the Act, please see the January 2018 Tech Flex by pasting the following into your browser: pdf and see article titled Maryland Safe and Sick Leave Bill Overridden. The Maryland Department of Labor, Licensing and Regulation has now released frequently asked questions. Some of the highlights are as follows: When does an employer have to start complying with the Maryland Healthy Working Families Act? Employers must begin complying with the Maryland Healthily Working Families Act on February 11, Which employers are required to provide earned sick and safe leave? All employers with employees whose primary work location is in Maryland are required to provide earned sick and safe leave, regardless of where the employer is located. Employers who employs 15 or more employees are required to provide paid earned sick and safe leave. Employers with 14 or fewer employees are required to provide unpaid earned sick and safe leave. Who is entitled to accrue earned sick and safe leave? All employees who work in Maryland are entitled to accrue sick and safe leave unless they are exempt from coverage under the law. 5

6 Tech Flex: March 2018 Volume III 6 Does the Maryland Healthy Working Families Act preempt local county paid sick leave laws? The Act preempts local paid sick and safe leave laws enacted on or after January 1, Only Montgomery County enacted a sick and safe leave prior to January 1, In calculating the 15 employee threshold, does an employer include employees that work in Maryland as well as employees that the employer employs in other states? The commissioner of labor and industry will consider only those employees employed in Maryland. All employees of the employer working in Maryland will be considered in determining the 15 employee threshold, including part-time, seasonal, and temporary employees. Does this law apply to an employer who is based out of state and has employers who work in Maryland? What about a Maryland employer who has employees who live and work in another state? The law applies to employers with employees whose primary work location is in Maryland even if the employer is located out of state. Employers whose primary work location is in Maryland are entitled to accrue leave under the Act. If a Maryland company has an employee who lives and works exclusively in another state, the employer could, but would not be required, to provide sick and safe leave to that employee. Can an employer front load earned sick and safe leave at the beginning of the year, and if so, what are the implications for leave carryover? What happens if an employer does not front load earned sick and safe leave? An employer may elect to award 40 hours of paid/unpaid earned sick and safe leave at the beginning of the year. The employer designates when the year starts and ends. If an employer front loads the leave, the employer establish a policy whereby the employee is not permitted to carry over any unused leave at the end of the year. Alternatively, an employee can accrue earned sick and safe leave at the rate of at least one hour for every 30 hours the employee works. Under the latter approach, employees are permitted to carry over earned sick and safe leave up to the maximum amount of 64 hours. Can an employer front load sick leave for full-time employees but provide that part-time employees earn leave on an accrual basis? Yes. An employer could front load leave to full-time employees but provide that part-time employees earn leave on an accrual basis. The department recommends that such a policy be in writing, clearly communicated to employees, and applied consistently with regard to all employees. What are the requirements for tracking earned sick and safe leave? The law does not require that an employer track employee leave in a specific manner. An employer is required to provide to each employee a statement of used and available and unpaid leave with each pay period. This requirement can be satisfied with an online system to which employees have access. Additionally, if an employee files a compliant, the employer must be able to demonstrate to the commissioner how many hours the employee worked, how much sick and safe leave the employee accrued, and how much sick and safe leave the employee was permitted to use. 6

7 Tech Flex: March 2018 Volume III 7 In what increments can an employee use earned sick and safe leave? The law provides that an employer may establish a minimum increment for leave use but that the increment cannot exceed four hours. Thus, an employer may allow an employee to use leave in any increment provided that the employer does not have a policy that requires employees to use leave in increments greater than four hours. For a copy of the entire 10 pages of frequently asked questions please click on the link provided below. For a copy of the Act please click on the link provided below. AUSTIN TEXAS APPROVES PAID SICK LEAVE ORDINANCE On February 16, 2018, the Austin, Texas City Council approved an ordinance establishing a paid sick leave requirement that will apply to all private employers located within the City. The new law will take effect, in large part, on October 1, It does not cover employers with five or fewer employees until October 1, It is important to note that there is talk that the Texas State Legislature will take steps to void the Austin ordinance in its next session beginning January 8, ADP will continue to monitor and report on the situation. Some of the highlights of ordinance are as follows: Covered Employers Employer means any person, company, corporation, firm, partnership, labor organization, non-profit organization, or association that pays an employee to perform work for an employer and exercises control over the employee s wages, hours and working conditions. The term does not include: The United States A corporation wholly owned by the government of the United States The state or a state agency A political subdivision of the state, or other agency that cannot legally be regulated by City ordinance Note: For an employer with no more than 5 employees at any time in the preceding 12 months, excluding family members, this ordinance is not in effect until October 1, Covered Employees Covered employees means an individual who performs at least 80 hours of work for pay within the City of Austin in a calendar year for an employer, including work performed through the services of a temporary or employment agency. Employee does not include an individual who is an independent contractor or unpaid interns. 7

8 Tech Flex: March 2018 Volume III 8 Accrual & Use Accrual Employees shall accrue one hour of earned sick time for every 30 hours worked for the employer in the City of Austin. Earned sick time shall accrue only in hour-unit increments. There shall be no accrual of a fraction of an hour of earned sick time. Employers with more than 15 employees (excluding family members) within at any time in the preceding 12 months must provide employees with up to 64 hours of earned sick time a year. Employers with 15 or fewer employees (excluding family members) within at any time in the preceding 12 months must provide employees with up to 48 hours of earned sick time a year. An employee exempt from overtime wage requirements under the federal Fair Labor Standards Act is assumed to work 40 hours each workweek. If the employee s normal workweek is less than 40 hours, the number of hours in the normal workweek must be used. Use Flat amount (frontloading) At the beginning of each year, an employer may award to an employee the full amount of earned sick that an employee would earn over the course of the year rather than awarding the leave as the leave accrues during the year. Employers are not required to allow employees to: use earned sick time during the employee s first 60 days of employment if the employer establishes that the employee s term of employment is at least one year. use more than 64 hours of earned sick leave in a year if employed by a medium or large employer (with more than 15 employees). use more than 48 hours of earned sick leave in a year if employed by a small employer (15 or fewer employees). Carryover Limit All available earned sick time up to the yearly cap of earned sick time shall be carried over to the following year. If an employer makes available at least the yearly cap of earned sick time available to an employee at the beginning of the year, they are not required to carry over earned sick time. Rehires An employee who is rehired by an employer within 6 months following separation of employment from that employer may use any earned sick leave available to the employee at the time of separation. Rate of Pay Requirements Employers shall pay earned sick time in an amount equal to what the employee would have earned if the employee had worked the scheduled work time, exclusive of any overtime premium, tips or commissions, but no less than the state minimum wage. 8

9 Tech Flex: March 2018 Volume III 9 Notice Requirements An employer that provides an employee handbook to its employees much include in the handbook a notice of employee rights and remedies under the Earned Sick Time chapter. An employer shall display a sign description the requirements of the Earned Sick Time chapter in at least English and Spanish in a conspicuous place or places where notices to the employees are customarily posted. An employer is not required to post such signage until the City of Austin makes such signage available publically on its website. Pay Statement Requirements On no less than a monthly basis, an employer shall provide electronically or in writing to each employee a statement showing the amount of the employee s available earned sick time. IRS 2018 FORM W-4 AND NEW WITHHOLDING CALCULATOR RELEASED On February 28, 2018, the Internal Revenue Service (IRS) released a revised Form W-4, Employee s Withholding Allowance Certificate, for 2018, ( as well as an online Withholding Calculator. Employers should consider notifying employees of the new IRS Form W-4 and Withholding Calculator found at to help employees determine whether they should change their withholding allowances for Background The Tax Cuts and Jobs Act (TCJA) made significant changes to tax rates, deductions, tax credits, and withholding calculations, beginning in New IRS withholding tables were published on January 11, directing employers to begin using them no later than February 15. All ADP systems implemented the 2018 withholding calculations in the week following the IRS release, so payrolls processed after January 18 generally reflected the new tables. Employees use the Form W-4 to establish marital status and withholding allowances for federal income tax withholding calculations. Additionally, many states permit use of the Federal Form W-4 for state withholding purposes. The IRS will not require all employees to file a new Form W-4 for However, for some people it may be advisable. How the Tax Cuts and Jobs Act Affected Withholding For most people, the TCJA will result in a tax reduction, and many have noticed reduced federal income tax deductions and a corresponding increase in net pay. However, even though the 2018 withholding tables were designed to be as accurate as possible, changes to withholding may not correspond closely to changes in actual full-year income tax liability. In some circumstances, even employees that ordinarily receive an IRS tax refund may find that they owe additional tax to the IRS in early 2019 (for tax year 2018). Unless an employee has already filed a new Form W-4 in 2018, tax withholding calculated for 2018 payrolls could be based on outdated withholding allowances. Most significantly, the law eliminated personal exemptions. In 2017, each personal exemption (e.g., for the employee, any spouse and any dependents) reduced federal taxable income by $4,050 per person. In 2018, the value of personal exemptions is zero. The value of each withholding allowance is $4,150 for 2018, and to the extent that withholding allowances on file in 2018 represent personal exemptions, an employee s withholding allowances may be overstated for 2018, which could result in tax under-withholding. 9

10 Tech Flex: March 2018 Volume III 10 The new IRS tax tables adjusted for this and other factors to some extent, but because Forms W-4 permit withholding allowances based on factors such as expected tax credits and itemized deductions (such as mortgage interest, and state/local taxes), employers are not able to automatically adjust withholding allowances to eliminate personal exemptions. Time for a Paycheck Checkup With the release of the new online W-4 Calculator and revised Form W-4, the IRS will promote the concept of a paycheck checkup, to suggest that employees should use the online withholding calculator, found at to determine the correct number of withholding allowances (either adjusting for the TCJA, or for changes in personal circumstances). The online IRS calculator will ask a number of questions about income, marital status, anticipated deductions and eligibility for tax credits, to estimate annual taxable income and suggest the most appropriate number of withholding allowances. Prominent among IRS Frequently Asked Questions is the following: Q: Should all employees check their withholding? A: Yes. Employees should check their withholding at the beginning of each year or when their personal circumstances change. It s even more important this year for people to do a paycheck checkup following the changes in the new tax law. With the new tax law, it s especially important for people who have previously itemized their deductions, have two or more jobs in their household, or have dependents, to check their withholding. Using the Withholding Calculator is the best way to check that you aren t having too much or too little tax withheld from your paychecks. What to Do Now Employers should consider notifying employees of the 2018 Form W-4 and withholding calculator. A sample letter follows. Example Notice to Employees Re: 2018 Income Tax Withholding Dear : You may have noticed lower federal income tax deductions and a corresponding increase in net pay in your recent paychecks. The recent Tax Cuts and Jobs Act (TCJA) changed federal income tax rates and brackets, among other things, beginning in New IRS withholding tables were put into effect in late January. The TCJA generally reduced federal income taxes for most people. However, depending on your specific tax situation, you might owe additional tax when you file your 2018 income tax return, even if you normally receive a tax refund from the IRS at year-end. You may want to consider updating your withholding allowances at this time. The IRS recently released the 2018 Form W-4, Employee s Withholding Allowance Certificate, and related instructions, which you can find at The IRS also offers an online W-4 Calculator, at This calculator may help you determine the correct number of withholding allowances to claim. The IRS will not require all employees to file a new Form W-4 for However, for some people it may be advisable. The TCJA made many other changes that could affect your 2018 income taxes. For questions regarding your personal tax situation, talk with your tax advisor, or visit 10

11 Tech Flex: March 2018 Volume III 11 IRS ISSUES 2018 VERSION OF PUBLICATION 15-A The Internal Revenue Service (IRS) has posted the 2018 version of Publication 15-A, Employer's Supplemental Tax Guide located at IRS Publication 15-A supplements IRS Publication 15 (Circular E), by providing more specialized and detailed employment tax information on certain topics covered in IRS Publication 15. There are sections in IRS Publication 15-A on: (1) Who Are Employees; (2) Employee or Independent Contractor; (3) Employees of Exempt Organizations; (4) Religious Exemptions and Special Rules for Ministers; (5) Wages and Other Compensation; (6) Sick Pay Reporting; (7) Special Rules for Paying Taxes; and (8) Pensions and Annuities. IRS Publication 15-A also includes the following alternative methods for computing federal income tax withholding: (i) formula tables for percentage method withholding for automated payroll systems; (ii) wage bracket percentage method tables for automated payroll systems; (iii) combined income tax, employee Social Security tax, and employee Medicare tax withholding tables; and (iv) tables for withholding on distributions of Indian gaming profits to tribal members. The publication notes the following tax law changes in the Tax Cuts and Jobs Act (Public Law ) that went into effect on January 1, 2018: Moving expense reimbursements. P.L suspends the exclusion for qualified moving expense reimbursements may by an employer from an employee s income for tax years beginning after December 31, 2017, and before January 1, However, the exclusion is still available in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station. The exclusion applies only to reimbursement of moving expenses that the member could deduct if he or she had paid or incurred them without reimbursement. See Moving Expenses in Pub. 3, Armed Forces Tax Guide, for the definition of what constitutes a permanent change of station and to learn which moving expenses are deductible Employee achievement awards. P.L defines items that aren t tangible personal property for purposes of employee achievement awards. Tangible personal property doesn t include cash, gift cards, and other nontangible personal property. New section 83(i) election. P.L added new section 83(i) to the Internal Revenue Code. Under section 83(i), qualified employees who are granted stock options or restricted stock units (RSUs) and who later receive stock upon exercise of the option or upon settlement of the RSU (qualified stock) may elect to defer the recognition of income for up to 5 years if certain requirements are met. An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) isn t treated as a nonqualified deferred compensation (NQDC) plan with respect to such employee solely because of such employee s election, or ability to make an election, to defer recognition of income under section 83(i). 11

12 Tech Flex: March 2018 Volume III 12 SOME PENALTY AMOUNTS UNDER IRC SECTIONS 6721 AND 6722 DECREASED It was previously reported that on October 19, 2017, the Internal Revenue Service (IRS) announced via Revenue Procedure the penalties under the Internal Revenue Code (IRC) for failure to file correct Information Returns, such as Forms W-2, 1099 and 1095-C, by the due date, and failure to furnish correct Information Returns to employees and other recipients by the required due date. On March 5, 2018, the IRS announced a reduction to some of these penalty amounts. The reason for the change is a provision in the Tax Cuts and Jobs Act signed into law on December 22, 2017 which substituted a measure when determining cost-of-living increases for benefits called the chained consumer price index (C-CPI-U) for the one previously mandated by law, the consumer price index (CPI-U) By way of background, both the CPI-U and C-CPI-U measure cost of living increases. The CPI-U looks at a number of consumer goods and services such as food, gas, health care and averages the increase of those items. The C-CPI-U does the same thing but in addition it looks at consumer behavior in determining cost of living increases. For example, if the cost of gas increases, it takes into account that consumers may take the bus to work more often thus lowering the impact of the increase in gas and the consumer s transportation cost. Consequently, the C-CPI-U increases at a slower rate than the CPI-U. Background of IRC Sections 6721 and 6722 Penalties Every employer engaged in a trade or business that makes payments for the year for services performed by an employee must file a Form W-2 for each employee from whom income, Social Security or Medicare tax was withheld, and furnish the Form W-2 to their employees. Applicable Large Employers (ALEs), generally those that employed at least 50 full-time employees (including full-time-equivalent employees) during the preceding calendar year, must file and furnish Forms 1095-C to employees to report whether they offer their fulltime employees and any dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan. The IRS administers statutory penalties associated with these reporting requirements under Sections 6721 and 6722 of the IRC. Penalty amounts are indexed and may change annually. Employers must mail or electronically file 2017 Form(s) W-2 and Form W-3 with the Social Security Administration (SSA) by January 31, Employers must electronically file if required to file 250 or more Forms W-2 or W-2c. Employees must be furnished with their Forms W-2 by January 31. Filing Penalties If an employer fails to file a correct Information Return by the due date and cannot show reasonable cause, the employer may be subject to a penalty as provided under IRC Section The penalty applies where an employer: Fails to file timely. Fails to include all information required to be shown. Includes incorrect information. Files on paper forms when required to electronically file. 12

13 Tech Flex: March 2018 Volume III 13 Reports an incorrect tax identification number; i.e., Social Security Number or Employer Identification Number. Fails to report a tax identification number. Fails to file paper forms that are machine readable. The amount of the penalty is based on when a correct form has been filed. Furnish Form(s) to Employees Generally, employers must furnish Copies B, C, and 2 of Form W-2 to employees by January 31 following the tax year of January 1 through December 31. You will meet the furnish requirement if the form is properly addressed and mailed on or before the due date. If employment ends before December 31, employers may furnish copies to the employee at any time after employment ends, but no later than January 31. Furnishing Penalties If an employer fails to provide correct Information Returns (Forms W-2 or 1095-C) to its employees and cannot show reasonable cause, the employer may be subject to a penalty as provided under IRC Section The penalty applies when an employer: Fails to provide the statement by January 31, as required. Fails to include all information required to be shown on the form. Includes incorrect information on the form. The amount of the penalty is based on when the employer furnishes the correct form. Note: The penalty under IRC Section 6722 is an additional penalty to that applied under IRC Section 6721 and is applied in the same manner, and with the same amounts. In other words, both penalties may apply; e.g., if an employer neither furnished a form as required nor filed a form as required. Consequently, the amounts below could be doubled. Revenue Procedure modified the penalties under IRC Sections 6721 and 6722 for tax year 2018 as follows. Revenue Procedure lowered some penalty amounts based on the newly mandated use of the Chained Consumer Price Index for cost of living adjustments. PENALTY PER RETURN 2017 Tax Year Forms W-2 must be filed and furnished by January 31, Tax Year Forms W-2 must be filed and furnished by January 31, 2019 Failure to file/furnish generally, annual cap on penalties $260/return; $3,218,500 annual cap $270/return; $3,282,500 $3,275,500 annual cap 13

14 Tech Flex: March 2018 Volume III 14 Failure to file/furnish generally; lesser cap for persons with gross receipts of not more than $5,000,000 Failure to file/furnish when corrected within 30 days of the required filing date; annual cap on penalties when corrected within 30 days of required filing date Failure to file/furnish when corrected within 30 days of the required filing date; lesser cap for persons with gross receipts of not more than $5,000,000 when corrected within 30 days of required filing date Failure to file/furnish when corrected by August 1 of the year in which the required filing date occurs; cap on penalties when corrected by August 1 of the year in which the required filing date occurs $260/return; $1,072,500 annual cap $50/return; $536,000 annual cap $50/return; $187,500 annual cap $100/return; $1,609,000 annual cap $270/return; $1,094,000 $1,091,500 annual cap $50/return; $547,000 $545,500 annual cap $50/return; $191,000 annual cap $100/return; $1,641,000 $1,637,500 annual cap Failure to file/furnish when corrected by August 1 of the year in which the required filing date occurs; lesser cap for persons with gross receipts of not more than $5,000,000 when corrected by August 1 of the year in which the required filing date occurs Penalty (per filing) in case of intentional disregard (Note: no cap applies in this case) Return other than a return required to be filed under 6045(a), 6041A(b), 6050H, 6050I, 6050J, 6050K, or 6050L ( 6721(e)(2)(A)) (Examples: Form W-2, Misc, 1099-R) $100/return; $536,000 annual cap Greater of (i) $540, or (ii) 10% of aggregate amount of items required to be reported correctly. No cap. $100/return; $547,000 $545,000 annual cap Greater of (i) $540, or (ii) 10% of aggregate amount of items required to be reported correctly. No cap. 14

15 Tech Flex: March 2018 Volume III 15 Return required to be filed under 6045(a), 6050K, or 6050L ( 6721(e)(2)(B)) Return required to be filed under 6050I(a) ( 6721(e)(2)(C)) Greater of (i) $540, or (ii) 5% of aggregate amount of items required to be reported correctly. No cap. Greater of (i) $27,350, or (ii) amount of cash received up to $109,000. No cap. Greater of (i) $540, or (ii) 5% of aggregate amount of items required to be reported correctly. No cap. Greater of (i) $27,350, $27,290 or (ii) amount of cash received up to $109,000. No cap. Return required to be filed under 6050V ( 6721(e)(2)(D)) Greater of (i) $540, or (ii) 10% of the value of the benefit of any contract with respect to which information is required to be included on the return. No cap. Greater of (i) $540, or (ii) 10% of the value of the benefit of any contract with respect to which information is required to be included on the return. No cap. For a copy of Revenue Procedure please click on the link provided below. CALIFORNIA SUPREME COURT CLARIFIES OVERTIME CALCULATIONS INVOLVING FLAT-SUM BONUSES The California Supreme Court recently issued a decision, Alvarado v. Dart Container Corp. of California found at significantly impacting how employers must calculate overtime pay when non-exempt employees receive a flat-sum bonus. Particularly, the Court ruled that when calculating overtime during pay periods when an employee received a flat-sum bonus, employers must divide the bonus by the number of non-overtime hours actually worked. The court s opinion states that this ruling is effective retroactively. In California, a flat-sum bonus is generally considered to be a bonus that does not increase or decrease based on the amount of time worked or production of the employee. As explained below, this decision effectively rejects the federal formula for calculating overtime when an employee receives a flat-sum bonus. Background: In California, employers must pay non-exempt employees 1.5 times their regular rate of pay for: Hours worked in excess of eight in a workday; More than 40 hours in a workweek; and For the first eight hours of work performed on the seventh consecutive work day in a single workweek. 15

16 Tech Flex: March 2018 Volume III 16 California also requires employers to pay non-exempt employees double their regular rate of pay for all hours worked in excess of: 12 hours in any workday; and Eight hours on the seventh consecutive work day in a workweek. For the purposes of determining an employee s regular rate of pay, employers must not only include hourly wages, but also nondiscretionary bonuses and certain other types of compensation. Regular rate of pay can change each pay period. Most bonuses are considered to be nondiscretionary, including those based upon hours worked, production, or proficiency. Discretionary bonuses (those completely in the control of the employer) are not calculated into the employee s regular rate of pay. California Supreme Court Case: The case before the California Supreme Court involved an employee who received a flatsum bonus of $15 for every weekend shift he completed, regardless of whether he worked overtime in that workweek (see Alvarado v. Dart Container Corp. of California). To calculate the regular rate of pay, the employer followed the federal formula and allocated the bonus over the total number of hours worked in the workweek, including overtime hours. The employee argued that to calculate the regular rate of pay state law requires that the flat-sum bonus be allocated only over non-overtime hours worked in that workweek (that is, dividing it by no more than 40 hours). The Court agreed with the employee, holding that the flat-sum bonus should be factored into an employee s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period. The employer should then use 1.5 (or 2 in certain cases), not 0.5, as the multiplier for determining the employee s overtime pay rate. The Court also specified that its determination was retroactive, rather than prospective only. 16

17 Tech Flex: March 2018 Volume III 17 Comparison of Federal and California Formulas for Calculating Overtime on Flat- Sum Bonuses: The key distinction between the two formulas is whether the flat-sum bonus must be allocated to all hours worked or only to non-overtime hours worked. The examples below illustrate how the federal and California formulas create a different result in calculating overtime on flat-sum bonuses. Both examples assume an employee earns an hourly wage of $12 and receives a $100 flat-sum bonus in a workweek in which he worked 50 hours. Federal (FLSA) Step 1: Add straight-time hourly wages for all hours worked and bonus to determine total straight-time compensation. ($12 hourly rate x 50 hours worked) + $100 bonus = $700 California (Adopted in Alvarado) Step 1: Divide the flat-sum bonus by the non-overtime hours worked. $100 divided by 40 hours = $2.50 perhour bonus Step 2: Divide total straight-time compensation by total hours worked to determine regular rate of pay. $700 straight-time pay divided by 50 hours worked = $14 Step 2: Multiply the per-hour bonus by 1.5 and the hourly wage by 1.5 and then add those products. $2.50 per-hour bonus x 1.5 = $3.75 $12 hourly wage x 1.5 = $18 Employee s overtime pay rate = $21.75 (the regular rate of pay is $14.50) Step 3: Multiply regular rate of pay by.5 and then multiply by total overtime hours. $14 regular rate of pay x.5 x 10 overtime hours = $70 Note: Since the straight-time earnings have already been calculated for all hours worked (see Step 1), the employee is entitled to an additional 10 hours of overtime pay, calculated at one-half the regular rate of pay. Step 3: Multiply the employee s overtime pay rate by the number of overtime hours. $21.75 x 10 overtime hours = $ in overtime compensation owed for hours

18 Tech Flex: March 2018 Volume III 18 Federal (FLSA) Step 4: Calculate total compensation for week. $70 overtime pay + $700 straight-time pay = $770 in total compensation California (Adopted in Alvarado) Step 4: Calculate total compensation. $480 in hourly wages for hours 1-40 ($12 x 40 hours) + $100 bonus + $ in overtime compensation for hours = $ in total compensation ADP Recommendations: Review the different types of bonuses that you provide to your non-exempt employees and determine whether they would be considered to be flat-sum bonuses. Consult with your legal counsel to determine whether any action would be advisable based on the retroactive effect of the California Supreme Court s ruling. Watch for future communications from ADP regarding updates to assist you with this calculation. MASSACHUSETTS HIGH COURT RULES THAT SICK PAY DOES NOT CONSTITUTE WAGES UNDER STATE LAW Summary: On January 29, 2018, the Massachusetts Supreme Judicial Court held that sick pay does not constitute wages under the Massachusetts Payment of Wages Law, M.G.L. c. 149, 148. As a result, employers are not liable under the Payment of Wages Law if they choose not to pay out accrued, unused sick pay to employees upon termination of employment. Background: In Tze-Kit v. Massachusetts Port Authority, the employer s sick leave policy provided that, upon termination of employment, eligible employees would receive payment for a percentage of the value of their accrued, unused sick time. The policy further provided for no payment of accrued, unused sick pay to employees discharged for cause. Here, the employer initiated disciplinary proceedings against the plaintiff. One week later, the plaintiff applied for retirement. The employer ultimately terminated the plaintiff s employment for cause. As a result, the employer did not pay the plaintiff for his accrued, unused sick time based on its application of the policy. An arbitrator overturned the employer s termination decision, finding that the employee retired before he was terminated. In light of that decision, the employer paid the plaintiff the full value of his accrued, unused sick leave. However, because of the lengthy grievance and arbitration proceedings, the employer did not make this payment until over a year after the plaintiff s last day of employment. Plaintiff then sued under the Payment of Wages Law because the employer had not paid him within the time frame required by the statute for final wage payments. After the trial court ruled for the plaintiff, his former employer appealed. 18

19 Tech Flex: March 2018 Volume III 19 The Court s Decision: Under the Payment of Wages Law, employees who resign must be paid in full on the next regular pay day. In contrast, employees who are discharged must be paid in full on the day of discharge. These obligations apply only to wages. Thus, the key question on appeal was whether accrued, unused sick leave constituted wages under the Payment of Wages Law. The Supreme Judicial Court began its analysis by noting that the Payment of Wages Law contains no definition of wages. The statute provides, however, that the term wages does include any holiday or vacation payments due an employee under an oral or written agreement. The term also includes commissions... [that have] been definitely determined and ha[ve] become due and payable to [the] employee. After reviewing this language, the court noted that the mere fact that the statute does not specifically include sick pay within the meaning of wages does not mean that it necessarily falls outside the scope of the statute. The court concluded, however, that the Legislature did not intend to include sick pay as wages under the Payment of Wages Law. Importantly, the court observed that because employees use of sick time is conditional it can only be used when an employee or family member is ill employees do not have an absolute right to spend down their sick time, employees are not typically compensated for accrued, unused sick time. Key Takeaways: The Tze-Kit decision is a helpful reminder to Massachusetts employers regarding their obligations under the Payment of Wages Law: (a) employees who resign must be paid their wages in full on the next regular pay day; and (b) employees discharged must be paid their wages in full on the day of discharge. This decision also clarifies that accrued, unused sick pay generally does not constitute wages under the Payment of Wages Law. Notably, although this case dealt with a sick pay policy put in place prior to Massachusetts adoption of its Earned Sick Time Law, the same conclusion should apply to sick leave accrued under the law. Indeed, the regulations issued by the Attorney General under the Earned Sick Time Law state that employers do not have to pay out unused earned sick time upon termination of employment. That said, employers that utilize Paid Time Off ( PTO ) programs to satisfy their obligations under the Earned Sick Time Law should be aware that, if, as is often the case, PTO can be used for both vacation and sick time purposes, then accrued, unused PTO likely would be considered to be wages and must be paid out upon the termination of the employment relationship. For a copy of Tze-Kit v. Massachusetts Port Authority please click on the link provided below. MASSACHUSETTS-PORT-AUTHORITY.pdf 19

20 Tech Flex: March 2018 Volume III 20 WEST VIRGINIA ALLOWS WAGE DEDUCTION WHERE EMPLOYEE FAILS TO RETURN EMPLOYER PROPERTY Governor Jim Justice of West Virginia has signed into law H2546 stipulating that if an employee fails to return an employer's property, such as equipment, phone, computer, supplies or uniforms, at the time of discharge or resignation, the employer may withhold or deduct from the employee's final wages an amount not to exceed the replacement cost of the employer-provided property. The employer is required to provide written notice to the employee at the time of termination as to the replacement cost of the items and to make a demand for the return of the property with a deadline of no more than 10 days after the date of the notice. Employees must be reimbursed if they return property, equipment, supplies, and uniforms in suitable condition by the deadline. If uniforms are returned within 3 years after they were provided they will be considered to be in acceptable condition. In order for the employer to deduct the wages from the terminating employee, the following requirements must be met: (1) the property was provided for use in the employer's business; (2) the value of the property is in excess of $100; and (3) the employee had signed a written agreement with the employer at the time the property was given to the employee. The written agreement must have specified the replacement cost for each item of property, stated that the items must be returned at the time of termination of employment, and clearly noted, coupled with the employee's acknowledgement, that the replacement cost of the item may be recovered from final wages. According to the West Virginia legislative website, H2546 is effective May 15, For a copy of H2546 please paste the following into your browser. ontype=rs 20

21 Tech Flex: March 2018 Volume III 21 BELMONT, CALIFORNIA TO INCREASE MINIMUM WAGE The City of Belmont, California has adopted a minimum wage ordinance. Under the ordinance, an employer generally must pay an employee at least the wage rates below for each hour worked within the geographic boundaries of Belmont: Beginning July 1, 2018: $12.50 per hour. Beginning January 1, 2019: $13.50 per hour. Beginning January 1, 2020: $15.00 per hour. Beginning January 1, 2021: $15.90 per hour. Beginning January 1, 2022 (and each January thereafter): adjusted for inflation. Other highlights of the ordinance include the following: Ordinance applies to adult and minor employees who work two (2) or more hours per week within the city limits of Belmont. Beginning January 1, 2021, and annually thereafter, the Belmont minimum wage will be adjusted based on the Regional Consumer Price Index. Tips and other benefits may not be considered an offset to the Minimum Wage. Each employer must give written notification to each current employee and to new employees (at the time of hire) of the employee s rights under the Belmont Minimum Wage Ordinance. The employer must post the Belmont Minimum Wage Official Notice prominently in the areas at the work site where it will be seem by all employees. Failure to post such notice will be a violation of the Municipal Code. Every employer must provide each employee, at the time of hire, with the employer s name, address and telephone number in writing. Each Employer shall maintain for at least three years for each Employee, a record of his or her name, hours worked and pay rate. For a copy of the Belmont Minimum Wage Official Notice please click on the link provided below: For a copy of the Belmont Minimum Wage Ordinance please click on the link provided below: 21

22 Tech Flex: March 2018 Volume III 22 SANTA FE COUNTY, NEW MEXICO MINIMUM WAGE INCREASED The County of Santa Fe, New Mexico has announced that effective March 1, 2018, the minimum wage in Santa Fe County will increase from $11.09 to $11.40 per hour. The cash wage for tipped employees will also increase from $3.32 per hour to $3.41 per hour on March 1. For a copy of the Santa Fe County announcement please click on the link below. ADP does not make any representation or warranty that the information contained in this newsletter, when used in a specific and actual situation, meets applicable legal requirements. This newsletter is provided solely as a courtesy and should not be construed as legal advice. The information in this newsletter represents informational highlights and should not be considered a comprehensive review of legal and compliance activity. Your legal counsel should be consulted for updates on law and guidance that may have an impact on your organization and the specific facts related to your business. **Please note that the information provided in this document is current as of the date it is originally published.** 22